CHAPTER ONE

INTRODUCTION

1.1. Introduction

Only the academic education is not enough to handle the real corporate environment therefore it is an opportunity for the students to know about the field of business through the internship program. As internship program is a perfect blend of the theoretical and practical knowledge.

This report is originated to fulfill the requirement of the assigned project internship report on”Credit Management of Mutual Trust Bank Ltd”. In this regard an organization attachment at Shanir Akhra Branch of Mutual Trust Bank has been given to me a period of up to three months. During the internship period I learned how the host organization works with the help of the internal supervisor.

The internal supervisor assigned me on of the projects and shuffled me around the different departments to educate me about the operation of a bank.

1.2. Objectives of the Study

This objective to prepare the report is to learn and match the educational learning and the real world experience because I have gathered theoretical knowledge about Banking from BBA course and tried to match real world experience with the theoretical knowledge.

Objectives:

There are also some other objectives that encouraged me for an elaborate report about the credit management of MTB. The secondary objectives to prepare the report are:

a) To denitrify present the credit management system of MTBL.

b) To explore the problems behind existing credit management system to MTBL.

c) To recommend some suggestions to MTBL.

1.4. Methodology of the Study

The methodology of the report is given below-

a) For the procedure of different banking operations, I had observed the operations and worked with the officers at the same time. I had interviewed the MTB officials for getting more information.

b) For the analysis part, data have been collected from different statements and the annual report of the bank.

Sources of Information:

The data collection method to study consists of both of primary and secondary sources. But majority of the information was collected from secondary sources.

Primary sources:

a) Practical desk work

b) Face to face conversation with the officer

c) Direct observations

d) Face to face conversation with the client

Secondary sources:

a) Annual report of MTBL published by 2005,2006, 2007, 2008,2009,2010.

b) Files & Folders.

c) Product or service brochure.

d) Visit web site of MTB.

e) Many circular published by MTB.

f) Many circular published by Bangladesh Bank.

g) Several Booklets of Mutual Trust Bank Limited.

1.5. Scope of the Study

Mutual Trust Bank Limited is one of the new generation banks in Bangladesh. The scope of the study is limited to the Shanir Akhra Branch only. The report covers the organizational structure; background, functions and the performance of the bank have mainly worked based on the credit department so my report covers all the activities of credit department of the Bank. In preparing this report the employees of credit department has helped me a lot and I have use both primary and secondary data which was available to me.

1.6. Limitations of the Study

Although I got all the facilities from the branch and the employees but there lies also some limitations otherwise of which the report could have been much better. Three months is not enough to know about commercial banking operation though I have received maximum assistance from the every individual of the MTB Shanir Akhra Branch. But according to the time it is been tried to make the utmost use of time to prepare a valuable report.The report is likely to have following limitations:

a) The Operating Process is a theoretical suggestion. Only a practical application of this may justify its effectiveness that could not be done due to time limitation.

b) Lack of comprehension of the respondents was the major problem that created many confusions regarding verification of conceptual question.

c) Confidentiality of data was another important barrier that was faced during the conduct of this study. Every organization has their own secrecy that is not revealed to others. While collecting data on MTBL, personnel did not disclose enough information for the sake of confidentiality of the organization.

However, omitting this, the report will help us understand the credit departments of the bank.

1.7. Time Schedule

a) Data collection ..................................... 30 days.

b) Data analysis ........................................ 20 days.

c) Report writing ....................................... 20 days.

d) Revise ................................................... 10 days.

e) Finalize ................................................. 10 days.

Total ........................................ 90 days.

CHAPTER TWO

Profile of the Organization

2.1. Origin of Banking Industry

The history of banking is as old as the history of money. Generally, to the necessity for keeping the money safe, the business of banking comes in to existence. The evolution if money solved the problem of ‘Barter System’. Earlier there are two groups of people. One group felt the need of honest and faithful person to keep their surplus money safe and the other group owing to transaction felt the need of some person who could provide money. As a result based on two groups a kind of businessman came in to picture. They used to keep the money as deposit for security and give loans to the needy people. This is how the banking sector has developed.

The English word ‘Bank’ is derived from the Italian word ‘Banco’. The Latin word ‘Bancus’ and the French word ’Banque’ which means a bench. They are of the opinion that the medieval.

European banker (i.e. moneychanger and moneylenders) transacted their banking activities on the benches in the market place. This money changing and money lending business is known as banking business.

Banking industry is very important financial institution in the country and the present economic state of Bangladesh demands immediate development of the financial institution. Bangladesh was born as an independent and sovereign country in the year 1971. That time banking industry faced a tremendous crisis as the Head office of the most of the banks was located in West Pakistan. After that, ‘Bangladesh Bank’ was established according to the order of Bangladesh Bank and this order effective from 16^th December 1971. Bangladesh Bank was given the duty to act as the Central Bank of Bangladesh.

After that in 1972 nationalization order was declared and all commercial banks were nationalized accepts foreign banks. Thus four nationalized banks were formed. They are Sonali Bank, Agrani Bank, Janata Bank, and Rupali Bank.

2.2. Present Status of Banking Industry in Bangladesh

Banking Business plays a vital role in driving and manipulating the total financial management and economy of any country. There are 52 different types of Banks operating in Bangladesh including newly established privatized commercial Banks, up to December 2009. Amongst these, there are 4 Nationalized commercial banks, 32 Private Banks, 10 Foreign Banks, 4 Government Specialized Banks, 1 Co-Operative Banks and 1 Grameen Bank.

In the recent years, Islamic Banking has been introduced which is a notable point in the existing banking system. Out of the established private banks four of them are Islamic Banks.

Besides the banking sector, there are some non-banking financial institutes, which contribute in financing the economy of the country. These institutions finance in different sector like housing, industries etc. which contributes towards the development of the country.

2.3. Company Profile

Mutual Trust Bank Ltd. was incorporated on September 29, 1999 under the Companies Act 1994 as a public company limited by shares for carrying out all kinds of banking activities with Authorized Capital of Tk. 38,00,000,000 divided into 38,000,000 ordinary shares of Tk.100 each.

The Company was also issued Certificate for Commencement of Business on the same day and was granted license on October 05, 1999 by Bangladesh Bank under the Banking Companies Act 1991 and started its banking operation on October 24, 1999. As envisaged in the Memorandum of Association and as licensed by Bangladesh Bank under the provisions of the Banking Companies Act 1991, the Company started its banking operation and entitled to carry out the following types of banking business:

i) All types of commercial banking activities including Money Market operations.
(ii) Investment in Merchant Banking activities.

(iii) Investment in Company activities.
(iv)Financiers, Promoters,Capitalists etc.
(v) Financial Intermediary Services.
(vii) Any related Financial Services.

The Company (Bank) operates through its Head Office at Dhaka and 76 branches. The Company/Bank carries out international business through a Global Network of Foreign Correspondent Banks.

2.3. Objective of the Bank:

The objective of the Mutual Trust Bank Limited is specific and targeted to its vision and to position itself in the mindset of the people as ‘a bank with difference’. The objectives of the Mutual Trust Bank Limited are as follows:

a) To mobilize the savings and channeling it out as loan or advance as the company approve.

b) To establish, maintain, carry on, transact and undertake all kinds of investment and financial business including underwriting, managing and distributing the issue of stocks, debentures, and other securities.

c) To finance the international trade both in import and export.

d) To carry on the foreign exchange business, including buying and selling of foreign currency, traveler’s cheques issuing, international credit card issuance etc.

e) To develop the standard of living of the limited income group by providing Consumer Credit.

f) To finance the industry, trade and commerce in both the conventional way and by offering customer friendly credit service.

g) To encourage the new entrepreneurs for investment and thus to develop the country’s industry sector and contribute to the economic development.

2.4. Mission of the bank:

The Bank aspires to be one of the most admired banks in the nation and be recognized as an innovative and client-focused company, enabled by cutting-edge technology, a dynamic workforce and a wide array of financial products and services.

2.5. Vision of the bank:

Mutual Trust Bank's vision is based on a philosophy known as MTB3V. It envisions MTB to be:
a) One of the Best Performing Banks in Bangladesh.
b) The Bank of Choice.
c) A Truly World-class Bank.

2.6. Branches

Mutual Trust Bank Limited is a fast growing commercial bank in our country. It has established a good operating network throughout the country. It has 50 Branches throughout the country till now. It has 10 branches that are working only for providing SME services. The total branch condition is given below:

Name of theDivision	Dhaka	Chittagong	Rajshahi	Sylhet	Rangpur	Barisal
Number of Branches	32	15	05	05	02	01

Besides these some other branches are scattered around some different rural areas specially providing SME services.

2.7. Products:

MTBL is one of the fast growing banks in our country. It got its success within a very few time that is only in 10 years. One of the main reasons of this huge success is the variety of products of MTBL. The product variety also made it unique and different. The product facilities of MTBL are arranged below.

Retail Banking.
NRB banking.
Corporate Banking.
SME Banking.

All these facilities can also be classified into simple two categories which are deposit facilities and credit facilities.

2.8. A short look to the products of MTBL:

1. Deposit Products:

As a very fast growing bank MTBL has launched a variety of products for the benefit of the customers. It also focused on the type of customers based on some ranges and introduced different type of products that matches each type of customer. The different type of deposit products offered by MTBL is given below:

a) Brick by Brick Savings Scheme.

b) Monthly Benefit Plan.

c) Education Plan.

d) Double Saver Plan.

e) Triple Saver Plan.

f) Millionaire Plan.

g) MTB inspire.

h) MTB senior.

i) Save everyday Plan.

2. Credit Products:

MTBL not only focused on the diversification on deposit products but also it has introduced a wide variety of loan products for the different type of customers according to the need of different category of customers. The range of loan products given by MTBL is given below.

1. Consumer loan products:

a) MTB Lifeline.

b) Auto loan.

c) Home loan.

d) Doctor’s loan.

2. : MTB Services:

a) Corporate banking.

b) Institutional Banking.

c) Term finance.

d) Investment Banking.

e) Trade finance.

f) Offshore banking.

g) Merchant Banking.

3. SME Banking:

a) MTB Bhagyoboti.

b) MTB Krishi.

c) MTB Moushumi.

d) MTB Revolbing loan.

e) MTB Small business loan

f) MTB Buniad

g) MTB Probaho

h) MTB Digoon.

4. Card Facilities:

a) Local Classic Credit Card.

b) Local Gold Credit Card.

c) Prepaid International Travel Money Card.

d) Prepaid Local Gift Card.

e) Visa Electron Debit Card.

2.9. Branch Specific analysis:

2.9. An overview of Shanir Akhra branch:

In July of 2009 Mutual Trust bank Limited has opened its Shanir Akhra Branch at Dhaka. It has a total number of 7 employees and 7 office staffs. Also the bank has a supervisor and two security guards. The workforce is very much co-operative both to each other and to the clients. As other authorized dealers, it is licensed by Bangladesh Bank to transact all types of foreign exchange business. While opened it was among the first 9 authorized dealers of Mutual Trust Bank. Now it can be counted among the best three operated branches of Mutual Trust Bank both in terms of profitability and operational efficiency.

Departments within Shanir akhra Branch
This branch has four departments as the following.
1. General Banking (GB) Department
2. Credit Department
3. Clearing Depart.
4. NRB Department.

2.10. Branch Credit Condition:

As a new branch Shanirakhra Branch has a good performance in loan taking that is the most important source of profit earning. The scenario of credit of the branch as of July 31, 2010 is given below:

Loans and advances	Amount
Car Loan	855549
Employee house building loan	1744671.33
Consumer finance	15369330
SME	16475689
Secured Overdraft	11400531
Term loan	13728653.5
Inland document bill purchase	13729329

CHAPTER THREE

Literature Review

The Credit Management definition has been viewed 7653 Time(s)

http://www.smallbusiness.wa.gov.au/credit-managem

Credit management is the process for controlling and collecting payments from your customers. A good credit management system will help you reduce the amount of capital tied up with debtors (people who owe you money) and minimise your exposure to bad debts.

Principles for the Management of Credit Risk - consultative document July 1999 Credit mgt is most simply defined as the potential that a bank borrower or counterparty will fail to meet its obligations in accordance with agreed terms. The goal of credit risk management is to maximise a bank's risk-adjusted rate of return by maintaining credit risk exposure within acceptable parameters.

According to Damon Horowitz (July 17, 2011) The policies and processes that allow customers and clients to defer payment for goods and services. The management and control of credit is a vital component in the process of controlling cash flow and many organisations have failed because management did not distinguish between profitability and cash flow. Effective credit management ensures that the total amount of credit extended and the period for which it is extended are consistent with the organisation's financial policies. It means ensuring that credit is granted on a consistent basis, the costs of credit are understood, the client payment process is effectively administered, and a debt recovery policy is in place.

De Cenzo,D A & Ribbins, S E (1988) A credit is a legal contract where one party receives resource or wealth from another party and promises to repay him on a future date along with interest. In simple terms, a credit is an agreement of postponed payments of goods bought or loan. With the issuance of a credit, a debt is formed.

www.financeglossary.net/definition/873-Credit_Management Credit Management as per FinanceGlossary.net is A plan to control or improve ones credit, often with the assistance of a professional service provider. as listing a plan to control or improve ones credit, often with the assistance of a professional service provider.

Mr. Mohsin in 1982 has presented a detailed and elaborate framework of Islamic Banking in modern setting. His model incrospondents the correctaristic of commerical bank, Marcent and development banks building them in novel fashion. It is various non banking service such trust Business factoring, real estate and consultancy as through interest free banks could not survey by banking service alone.

Al- Jahari in 1983 went so far as to favor the imposition of a 100% reserve requirement of commercial Banks Dr. Ummar Chapras was also much concern about the concentration of economic power private banks might enjoy in a system based on equity financing.

Harvey (2004): in “East Asian SME capacity Building, competitiveness and Market opportunities in a Global Economy” postulates that developing economics are especially seeing small business as potential instruments for the alleviation of poverty.

Jr. Journal of Asian Economy, 2006): SMEs need low capital investment per unit of output and give rise to greater opportunities of direct or indirect employment, in a positive environment SME offer sustainable business solutions that simultaneously fight poverty and accelerate economic growth.

CHAPTER FOUR

Analysis And Findings

4.1. Concept of Credit

The word credit is derived from the Latin word “credo” which means “I believe” and is usually defined as the ability to buy with a promise to pay. It consists of actual transfer and delivery of goods and services in exchange for a promise to pay in future. It is simply the opposite of debt. Diversification of banking service has accelerated the use of credit in the expansion of business operation. It is a fundamental precept of banking everywhere that advances are made to customers in reliance on his promise to pay rather than the security held by the banker.

4.2. Description of Credit products of MTB:

Whatever credit facility anybody is looking for, he/she will surely find it at MTBL. It has a comprehensive selection of facilities to offer, from a simple personal loan, credit cards, auto loan and overdraft facilities to home loan. It has a wide variety of credit facility that makes it different from the other banks to the consumers.
A very brief description of the different credit products are described below:

4.3 Consumer loan products:

1. MTB Life line:

Whether anybody is getting married, going for holidays, renovating his home, or considering any other major purchase, MTB Lifeline is the best option to achieve the goals.
Features and Benefits:

Any purpose personal loan for salaried executives, business person & self employed individuals
Loan up to Tk. 6 Lacs
12 - 60 months installment option
Competitive interest rates

Forms of Loans of Life line:

1.1 Health Line:

This product is launched with a view to consider the needs of individuals to be healthy. As the bank thinks about the every financial need of each customer so it introduced this product which is quite rare to other banks. The features of the product are given below.

a) Hospitalization or other emergency medical needs.
b) To purchase body fitness equipments.

1.2. Education Line:

Education is one of the basic needs of a person. It is now a days related to money and expences. Parents always cannot afford the higher education expences of their children. So the bank introduced the special loan to those parents who want to get their children higher education. The features of the product are given below.

a) For higher education purpose.

b) To purchase of computer, tuition fees or other education expenses.

1.3. Professionals line:

Professional line is completely a different product than the other products. It is neither a working capital product, nor a consumer product loan. The bank provides loan individuals to purchase equipment to run their profession. The features of the product are given below.

a) Purchase of professional equipments.

b) For office renovation/ decoration.

1.4. Marriage line:

Marriage line is the product for those who does not have the ability to afford the cosolidated expence of marriage and do not have much savings to expend. The bank thinks of the individual customer needs. So introduced the product. The features of the product are given below.

a) To meet marriage expenses for himself/ herself

1.5. Travel line:

This loan is for the people who love to travel. Traveling needs a bundle of money that is not always possible to arrange instantly. MTB provides loan to those travel seekers who do not have instant ability to go for a travel but have regular income flow to recover it. The features of the product are given below.

a) For honeymoon trip.

b) For family trip, abroad or in the country.
1.6. Festival line:

The common phenomenon related to festival is shopping and some formalities that are legated to expenses and money. To expend money in special festive the bank provides loan to the people. The features of the product are given below.

a) To enjoy festive period.

b) Gift for the family/ in laws/ relatives.

1.7. Dreams Come True line:

It is a type of consumer loan. This loan is provided to make the individual dreams come true. It is mainly a loan that is provided to purchase the home equipments. The features of the product are given below.

a) To purchase TV, Fridge, Furniture, Home Theatre, Motor Cycle, AC etc.
b) To decorate/renovate own Home/Car.

1.8. Care Line

It is a special loan for higher dreams. This is mainly a loan for luxurty expendetures. The features of the loan are given below.
a) Loan for fulfillment of parents dream.
b) To purchase economy car (second hand car) for the family.

1.2. Auto Loan:

With the unparalleled ownership experience coupled with convenient availability, comfortable repayment periods and attractive interest rates MTBL provides easy and simple processing car loan. Tt has never been easier to own a car.
Features and Benefits:
a) Loan amount ranging from Tk. 300,000 to Tk. 20,00,000.
b) Car financing up to 70% of reconditioned or new vehicle price.
c) Loan tenor 12 to 60 months.
d) Competitive interest rate.

1.3. Home Loan

An apartment or just the right piece of land to build a dream house? MTB brings MTB home loans to the doorstep.

Features and Benefits:
a) Loan amount ranging from Tk. 300,000 to Tk. 50,00,000.
b) Loan tenor up to 20 years.
c) Competitive interest rate.

4.4 Corporate Loans:

4.1. Term Finance:

It provides loans that have specified repayment schedule and a floating interest rate with tenure more than one year but less than ten years. The bank also offers term loans for the following broader purposes.

a) Project Finance.

b) Finance for Importing Capital Machinery.

c) Lease Finance.

d) House Building Finance.

4.2. Working Capital Finance:

MTBL has special care in financing to meet the customers' running capital requirements by offering the following products:

a) Secured Over Draft (SOD)

b) Cash Credit (Hypo.)

c) Cash Against Document

d) Short Term Loan

e) Inland Bill Purchase (IBP)

f) Foreign Bill Purchase (FBP)

4.3. Trade Finance:

MTBL offers export and import finance facilities for the customers depending on their requirements. This trade finance service is a unity of funded and non-funded facilities.

4.3.1. The export finance facilities include:

a) Back to Back L/C opening

b) Export Bill Discounting (FDBP and IDBP)

c) Secured Over Draft (SOD-general/export bill)

4.3.2. Our import finance facilities include:

a) Loan Against Trust Receipt (LTR)

b) Term Loan (TR)

4.3.3. Non-funded trade finance facilities:

a) L/C Opening (Sight & Deferred)

b) L/C Advising

c) L/C Transfer
Bank Guarantee

d) Secured Over Draft (SOD) in the form of SOD (general/export bill) and SOD (Others-work order, FDR, land, etc.)

e) Bank Guarantee in the form of Performance guarantee, Advance Payment guarantee, and Inland Bill Purchase (IBP) includes mainly government security bills and bonds.

f) Foreign Bill Purchase (FBP) includes foreign drafts.

4.4. MTB Offshore Banking:

MTB Offshore Banking services specially tailored for 100% foreign owned company, joint venture and locally owned company in Export Processing Zones (EPZ). It offers term finance, working capital finance and trade finance services in different modes. It also provides term finance facility to locally owned industrial units outside EPZ under some special conditions.

4.5. Structured Finance:

MTB is active in the Syndication market with professional team having finest expertise and wide market network for enabling its corporate clients to access large loans through cost efficient structures. It offers tailor made solutions to fit a business requirement. It also facilitates its peer group in closing their syndicated deals by co-arranging or by taking large exposures in both Greenfield and Brownfield projects including

a) Infrastructure Financing e.g. Power, Telecom, Hotel.

b) Aircraft Financing.

c) Manufacturing Project Financing e.g. Steel, Cement, Glass, Petrochemical.

d) Agro-based Project Financing.

e) Micro Financing.

The product basket of MTBL contains Long Term Financing along with full range of product mix for Short Term Financing of day to day operations and non fund based facilities. It seeks to understand unique needs of any business and incessantly strive to meet and to exceed the expectations of a business person.

4.5. SME Banking:

MTB Bhagyobati:

MTB Bhagyobati loan is only for the SMEs owned by the women entrepreneurs.

Features and Benefits:

a) Loan amount range BDT 1.00 lac to BDT 50.00 lac.

b) Loan tenure up to 3 years.

c) Rate of interest 10% p.a (only in case of re-finance from BB).

d) Up to BDT 5.00 lac is collateral free.

e) Easy repayment schedule.

f) No service charge or hidden charge.

g) Easy processing.

h) At least one year of business experience.

MTB Krishi:

MTB Krishi is designed for direct lending in the agriculture sector. Only eligible farmers and agri SMEs may apply for the loan. Crops cultivation, fisheries, livestock & poultry are the priority sector of lending.

a) Features and Benefits:
Loan amount up to BDT 3.00 core.

b) Loan tenure up to 5 years.

c) Rate of interest 10% p.a (only in case of re-finance from BB).

d) Up to BDT 5.00 lac is collateral free.

e) Easy repayment schedule.

f) No service charge or hidden charge.

g) Easy processing.

h) Timely disbursement.

MTB Mousumi:

SME customers needs additional fund in some occasions, festivals and seasons. MTB Mousumi enables those SMEs which has seasonal type of business.

Features and Benefits:
Loan amount up to BDT 10.00 lac
Loan period range 01 to 12 months
Attractive Rate of interest
Up to BDT 5.00 lac is collateral free
Easy repayment schedule
1% service charge and no other hidden charge
Minimum 02 years of business experience
Easy processing

MTB Revolving Loan:

Any SME, manufacturing, service, trading or farming, requires working capital for smooth operation of the business. This loan product enables those SMEs to meet their working capital requirements to support their operations and future growth.

Features and Benefits:
It is CC (H) and revolving type loan.
Loan amount up to BDT 50.00 lac.
Loan period 01 year and annually renewable.
Attractive rate of interest.
Minimum 02 years of business experience.
At least 02 years of bank account transactions.
Account turnover to be 03 times of the loan amount.
Easy processing.
No service charge or hidden charge.
Requires collateral support.

MTB Small Business Loan:

Enables the SMEs to expand their business.

Features and Benefits:

Loan amount up to BDT 50.00 lac.
Loan period up to 5 years.
Attractive rate of interest.
Easy repayment schedule.
Minimum 02 years of business experience.
1.00% service charge.
Up to BDT 5.00 lac is collateral free.
Easy processing.

MTB Digoon:

Enables the SMEs to get loan double amount of their deposit.

Features and Benefits:

Loan amount range BDT 5.00 lac to BDT 20.00 lac.
Loan tenure up to 05 years.
Attractive rate of interest.
Monthly repayment.
Security 50% Fixed Deposit (FDR) of loan amount.
Easy processing.

MTB Interest Rates on Lending

	Categories		Rates
1	Agriculture		12.50%* (Highest)
2	Term loan to large & medium scale industries		13.00% (Highest)
3	Working Capital		13.00% (Highest)
4	Export Finance (PC, ECC)		7.00% (Highest)**
5	Commercial Lending		13.00% (Highest)
6.	Import finance		13.00% *** (Mid Rate)
7.	Housing Loan:	(1) Commercial	13.00% (Highest)
		(2) Residential a)General b) Wage Earners	12.75%(Highest) 12.50%(Highest)

8.	Term Loan to small & Cottage Industries		14.50% ( Mid Rate)
9.	Consumer Credit		14.50% (Mid Rate)
10.	Lease Finance		14.50% (Mid Rate)
11.	Loan to Non-Banking Financial Institutions		13.00% (Highest)
12.	Loan/SOD against FDR of the Bank		• 3% above FDR rate if the rate is 10% or below • 4% above FDR rate if the rate is above 10%
13.	Loan/SOD against Millionaire Plan, Brick by Brick, Double Saver/Triple Saver deposit scheme & other special deposit products of the Bank		• 3% above deposit product rate if the rate is 10% or below • 4% above deposit product rate if the rate is above 10%
14.	SOD against FDR of other Banks		13.00% (Mid Rate)
15.	Auto Loan		14.50% (Mid Rate)
16.	Small Business Loan under SME		13.00% (Mid Rate)
17.	Others		13.00% (Mid Rate)
* The interest rate on financing against pulse, oil seeds, spices (onion, garlic, ginger, chili, turmeric and cumin) and maize will be 2% (as per ACSPD Circular No. 3 dated 10.10.2006). * * As per BRPD Circular No. 01 dated 10.01.2004. * * * The rate of interest on import financing of rice, wheat, sugar, edible oil (crude and refined), chickpeas, beans, lentils, onions, spices, dates and powder milk will remain to a maximum of 12%( as per BRPD circular No. 09 dated 14.08.2007, 04 dated 17.03.2008, 06 dated 05.05.2009 and 07 dated 10.05.2009).

4.6. Credit Principles

Every bank has follows some credit principles in giving a loan. It provides some specific benchmarks as well as guidelines about where to give loan and where it can be risky. Credit principles include the general guidelines of providing credit by branch manager or credit officer. In Mutual Trust Bank Limited they follow the following guideline while giving loan and advance to the client.

a) Credit advancement shall focus on the development and enhancement ofØ customer relationship.

b) All credit extension must comply with theØ requirements of Bank’s Memorandum and Article of Association, Banking Company’s Act, Bangladesh Bank’s instructions, other rules and regulation as amended from time to time.

c) Loans and advances shall normally be financed fromØ customer’s deposit and not out of temporary funds or borrowing from other banks.

d) The bank shall provide suitable credit services for the marketsØ in which it operates.

e) It should be provided to those customers who canØ make best use of them.

f) The conduct and administration of the loanØ portfolio should contribute with in defined risk limitation for achievement of profitable growth and superior return on bank capital.

g) Interest rate ofØ various lending categories will depend on the level of risk and types of security offered.

4.7. Credit evaluation Principles

Some principles or standards of lending are maintained in approving loans in order to keep credit risk to a minimum level as well as for successful banking business. The main principles of lending are given below:

Liquidity:

Liquidity means the availability of bank funds on short notice. The liquidity of an advance means it repayment on demand on due date or after a short notice. Therefore, the banks must have to maintain sufficient liquidity to repay its depositors and trade off between the liquidity and profitability is must.

Safety:

Safety means the assurance of repayment of distributed loans. Bank is in business to make money but safety should never be sacrificed for profitability, To ensure the safety of loan. The borrower should be chosen carefully. He should be a person of good character & capacity as well as bank must have to maintain eligible number of security from borrower.

Profitability:

Banking is a business aiming at earning a good profit. The difference between the interest received on advances and the interest paid on deposit constitutes a major portion of the bank income, Besides, foreign exchange business is also highly remunerative. The bank will not enter into a transaction unless a fair return from it is assured.

Purpose of the loan:

Banks sanction loans for productive purpose. No advances will be made by bank for unproductive purposes though the borrower may be free from all risks.

Security:

The security offered for an advance is an insurance to fall bank upon incases of need. Security serves as a safety value for an unexpected emergency. Since risk factors are involved, security coverage has to be taken before a lending.

National interest:

Banking industry has significant roll to play in the economic development of a country. The bank would lend if the purpose of the advances can contribute more to the overall economic development of the country.

For any credit decision the credit appraisal plays a vital role for sector wise justification. There is no fixed or standardized approach to project appraisal. Numerous and deverse elements enter into the process of appraisal. It is difficult to have cuy and dried formula with the help of which a proposal for financial assistance can be adjusted straightway as acceptable or unacceptable. While broadly the same set of factors are taken into consideration in the scrutiny of individual proposals, the weight given to the factors varies from project to project. However Mutual Trust Bank Ltd considers five aspects of a credit proposal while appraisal.

4.8.1. Technical Appraisal:

Technical appraisal report is prepared by an engineer of the appraisal sector to see whether the project is sound with regard to every engineering and technological consideration, including product specification, product process, size, internal balance, suitability and availability of physical facilities, designs and layoutsof equipment and building etc.

The basic aspects of technical appraisal are:

a) Cost of project.

b) Annual production capacity & manufacturing process.

c) Location, infrastructural facilities feature and estimated costv of the land.

d) Civil drawings and the cost of civil works.

e) Layout plan for building and machinery.

f) Estimated cost of machinery with installation.

g) Selection of product process involving the choice of alternatives, wastage, by product, disposal of wastes and effluents etc.

h) Annual requirement of raw materials with source of availability.

i) All input output data of the project.

4.8.2. Marketing Appraisal:

An industrial projects to bring in some goods or services for a community. But the community does not need them infinitely. Their demand is of course finite and at given prices. Marketing plan, as in the case of production and financial plan, should have objective in the back drop, and the objective is what is wanted to be achieved. While appraising industrial projects MTB analyses three factors and brings out the objectives in quantitative terms.

a) Macro aspects.

b) Micro demand.

c) Supply situation for specific products in the market.

4.8.3 Financial appraisal:

The next step is to prepare a detail report on the financial viaability of the project. The main purpose of such appraisal is to assess the viability of the project in terms of its operation in the future years and its financial soundness. It is concerned with assessing the feasibility of a project from the point of view of its financial result. The project’s direct costs and benefits are calculated in pecuniary terms at the prevailing market prices. Mutual Trust Bank Ltd. Satisfies itself not only about the current solvency but also about its continued solvency to ensure timely payment of the principal and the regular payment of interest. The revenant information collected on technical economic and management aspects of the project have got direct bearing upon the financial appraisal. Such appraisal is directed to examine mainly the following aspects:

The basic aspects of financial appraisal are:

a) Ratio analysis.

b) Break-Even Analysis.

c) Earning Forecast.

d) Fund flow Statement.

e) Internal Rate of Return (IRR).

f) Pay Back Period Method.

g) Net present value (NPV) Method.

4.8.4 Economic Appraisal:

MTB does economic analysis of a project to determine whether the project is consitent with overall national objectives and whether the investment proposed is the best means of achieving the intended objectives. It involves a systematic evaluation of a range of options for achieving the intended objectives.

Economic appraisal of the project by MTB covers both quantifiable and non quantifiable benefits.

a) Quantifiable Benefits.

b) Quantifiable benefits of the economic appraisal.

c) Economic rate of return (ERR).

d) Bruno Ratio/Domestic resource cost.

e) Contribution of Gross Domestic Product and

f) Employment generation and cost per employment.

4.8.5. Management appraisai:

MTB emphasizes on the appraisal of management as a very important part of project appraisal. The successful implementation and running of the project depends on the resourcefulness, competence and integrity. The bank does it through direct and indrect investigation.

4.9. Policy Guidelines for CRM by Bangladesh Bank:

This section details fundamental credit risk management policies that are recommended for adoption by all banks in Bangladesh. The guidelines contained herein outline general principles that are designed to govern the implementation of more detailed lending procedures and risk grading systems within individual banks.

Lending Guidelines

All banks should have established Credit Policies (“Lending Guidelines”) that clearly outline the senior management’s view of business development priorities and the terms and conditions that should be adhered to in order for loans to be approved. The Lending Guidelines should be updated at least annually to reflect changes in the economic outlook and the evolution of the bank’s loan portfolio, and be distributed to all lending/marketing officers. The Lending Guidelines should be approved by the Managing Director/CEO & Board of Directors of the bank based on the endorsement of the bank’s Head of Credit Risk Management and the Head of Corporate/Commercial Banking. Any departure or deviation from the Lending Guidelines should be explicitly identified in credit applications and a justification for approval provided. Approval of loans that do not comply with Lending Guidelines should be restricted to the bank’s Head of Credit or Managing Director/CEO & Board of Directors. The Lending Guidelines should provide the key foundations for account officers/relationship managers (RM) to formulate their recommendations for approval, and should include the following:

Industry and Business Segment Focus.

The Lending Guidelines should clearly identify the business/industry sectors that should constitute the majority of the bank’s loan portfolio. For each sector, a clear indication of the bank’s appetite for growth should be indicated (as an example, Textiles: Grow, Cement: Maintain, Construction: Shrink). This will provide necessary direction to the bank’s marketing staff.

Types of Loan Facilities

The type of loans that are permitted should be clearly indicated, such as Working Capital, Trade Finance, Term Loan, etc.

Single Borrower/Group Limits/Syndication

Details of the bank’s Single Borrower/Group limits should be included as per Bangladesh Bank guidelines. Banks may wish to establish more conservative criteria in this regard. Appendix-3.4.3 provides brief description of financing under syndicated arrangement.

Lending Caps

Banks should establish a specific industry sector exposure cap to avoid over concentration in any one industry sector. Discouraged Business Types Banks should outline industries or lending activities that are discouraged. As a minimum, the following should be discouraged:

- Military Equipment/Weapons Finance

- Highly Leveraged Transactions

- Finance of Speculative Investments

- Logging, Mineral Extraction/Mining, or other activity that is

Ethically or Environmentally Sensitive

- Lending to companies listed on CIB black list or known defaulters

- Counterparties in countries subject to UN sanctions

- Share Lending

- Taking an Equity Stake in Borrowers

- Lending to Holding Companies

- Bridge Loans relying on equity/debt issuance as a source of repayment.

Loan Facility Parameters

Facility parameters (e.g., maximum size, maximum tenor, and covenant and security requirements) should be clearly stated. As a minimum, the following parameters should be adopted:

- Banks should not grant facilities where the bank’s security position is inferior to that of any other financial institution.

- Assets pledged as security should be properly insured.

- Valuations of property taken as security should be performed prior to loans being granted. A recognized 3rd party professional valuation firm should be appointed to conduct valuations.

Cross Border Risk

Risk associated with cross border lending. Borrowers of a particular country may be unable or unwilling to fulfill principle and/or interest obligations. Distinguished from ordinary credit risk because the difficulty arises from a political event, such as suspension of external payments

- Synonymous with political & sovereign risk

- Third world debt crisis

For example, export documents negotiated for countries like Nigeria.

Credit Assessment & Risk Grading

Credit Assessment

A thorough credit and risk assessment should be conducted prior to the granting of loans, and at least annually thereafter for all facilities. The results of this assessment should be presented in a Credit Application that originates from the relationship manager/account officer (“RM”), and is approved by Credit Risk Management (CRM). The RM should be the owner of the customer relationship, and must be held responsible to ensure the accuracy of the entire credit application submitted for approval. RMs must be familiar with the bank’s Lending Guidelines and should conduct due diligence on new borrowers, principals, and guarantors. It is essential that RMs know their customers and conduct due diligence on new borrowers, principals, and guarantors to ensure such parties are in fact who they represent themselves to be. All banks should have established Know Your Customer (KYC) and Money Laundering guidelines which should be adhered to at all times. Credit Applications should summaries the results of the RMs risk assessment and include, as a minimum, the following details:

- Amount and type of loan(s) proposed.

- Purpose of loans.

- Loan Structure (Tenor, Covenants, Repayment Schedule, Interest)

- Security Arrangements In addition, the following risk areas should be addressed:

- Borrower Analysis. The majority shareholders, management team and group or affiliate companies should be assessed. Any issues regarding lack of management depth, complicated ownership structures or intergroup transactions should be addressed, and risks mitigated.

- Industry Analysis. The key risk factors of the borrower’s industry should be assessed. Any issues regarding the borrower’s position in the industry, overall industry concerns or competitive forces should be addressed and the strengths and weaknesses of the borrower relative to its competition should be identified.

- Supplier/Buyer Analysis. Any customer or supplier concentration should be addressed, as these could have a significant impact on the future viability of the borrower.

- Historical Financial Analysis. An analysis of a minimum of 3 years historical financial statements of the borrower should be presented. Where reliance is placed on a corporate guarantor, guarantor financial statements should also be analyzrd. The analysis should address the quality and sustainability of earnings, cash flow and the strength of the borrower’s balance sheet. Specifically, cash flow, leverage and profitability must be analyzed.

- Projected Financial Performance. Where term facilities (tenor > 1 year) are being proposed, a projection of the borrower’s future financial performance should be provided, indicating an analysis of the sufficiency of cash flow to service debt repayments. Loans should not be granted if projected cash flow is insufficient to repay debts.

- Account Conduct. For existing borrowers, the historic performance in meeting repayment obligations (trade payments, cheques, interest and principal payments, etc) should be assessed.

- Adherence to Lending Guidelines. Credit Applications should clearly state whether or not the proposed application is in compliance with the bank’s Lending Guidelines. The Bank’s Head of Credit or Managing Director/CEO should approve Credit Applications that do not adhere to the bank’s Lending Guidelines.

- Mitigating Factors. Mitigating factors for risks identified in the credit assessment should be identified. Possible risks include, but are not limited to: margin sustainability and/or volatility, high debt load (leverage/gearing), overstocking or debtor issues; rapid growth, acquisition or expansion; new business line/product expansion; management changes or succession issues; customer or supplier concentrations; and lack of transparency or industry issues.

- Loan Structure. The amounts and tenors of financing proposed should be justified based on the projected repayment ability and loan purpose. Excessive tenor or amount relative to business needs increases the risk of fund diversion and may adversely impact the borrower’s repayment ability.

- Security. A current valuation of collateral should be obtained and the quality and priority of security being proposed should be assessed. Loans should not be granted based solely on security. Adequacy and the extent of the insurance coverage should be assessed.

- Name Lending. Credit proposals should not be unduly influenced by an over reliance on the sponsoring principal’s reputation, reported independent means, or their perceived willingness to inject funds into various business enterprises in case of need. These situations should be discouraged and treated with great caution. Rather, credit proposals and the granting of loans should be based on sound fundamentals, supported by a thorough financial and risk analysis. Risk Grading All Banks should adopt a credit risk grading system. The system should define the risk profile of borrower’s to ensure that account management, structure and pricing are commensurate with the risk involved. Risk grading is a key measurement of a Bank’s asset quality, and as such, it is essential that grading is a robust process. All facilities should be assigned a risk grade. Where deterioration in risk is noted, the Risk Grade assigned to a borrower and its facilities should be immediately changed. Borrower Risk Grades should be clearly stated on Credit Applications.

Pre disbursement requirements:

When the credit proposal are approved the credit officer must have to be ensured that the disbursement of the credit facilities must comply with the directions written in the credit policy and circular made by time to time along with checking all the following terms and conditions.

The officer ofØ Loan Administration must collect the acceptance of the customer’s of the terms and conditions on the duplicate copy of the sanctioned advice.
TheyØ will thoroughly examine and ensure that the subject credit facility does not contradict to any law, rules and regulation of the country, Bangladesh Bank and
Deed of the Mortgage and power of the Attorney to be drafted andØ executed under the Supervision of the Bank’s Legal Advisor.
LawyersØ certificate to the effect that all the legal formalities (Equitable/ Registered Mortgaged) has been properly created on the land and building in favor of the bank & bank has acquired the effective title of the property.
Registered power of attorney has been collected form theØ borrower (contractor) assigning the work order favoring the DBL and the power of attorney has been registered with the work order given agency and they have agreed that they will issue all the cheques favoring MTB.
The legalØ documents of the vehicle have been obtained.
Collection of theØ satisfaction certificate in respect of all the documents both legal and banking from the lawyer.
Entry has been made in the Safe -in and Safe-outØ register and the documents are preserved.

After being satisfied all the above terms and conditions the credit in-charge will disburse the loan amount to the client.

4.11. Credit processing steps of MTB:

Credit processing maintained by MTB is given detail below:

Application for loan:

Applicant applies for the loan in the prescribed form of bank. The purpose of this forms is to eliminate the unwanted borrowers at the first sight and select those who have the potential to utilize the credit and pay it back in due time.

Getting Credit information:

Then the bank collects credit information about the borrower from the following sources:

1. Personal Investigation.

2. Confidential report from other bank/ Head office/Branch.

3. CIB report from central bank.

Project Inspection:

Bank officially inspects the project for which the loan is applied. Project’s existence, distance from bank office, viability, monitoring cost and possibilities are examined.

Credit Risk Grading:

Any loan proposal needs to be evaluated on the basis of financial information provided by the applicant. Experienced personnel of Credit department in MTB do an analysis through Credit Risk Grading Score. If the CRG score is satisfactory then the bank goes for the next step.

Opinion Of Collateral:

Obtain legal opinion on the collateral provided by the applicant, whether those are properly submitted, regular and up to date or else those documents will be asked to regularize by the client.

Processing Stage:

Then comes the processing stage of loan. In this stage, the Bank will prepare a Proposal. The proposal contains following relevant information.

Name of the Borrower/borrowers
Nature of Limit
Purpose of Limit
Extent of Limit
Collateral
Margin
Rate of Interest
Repayment
Validity

Head office approval:

It is then sent to head office for final sanction with detailed information regarding clients, business or purpose of the loan, security papers. Head office processes the credit proposal and afterwards puts up a memorandum to credit committee. The credit committee reviews the credit proposal and accepts or rejects the proposal.

Approval by the Head Office:

After approval by the Credit Committee, head office gives an approval letter to the branch and branch gives a sanction letter. The client should accept sanction advice with seal, which will prove his agreement with the terms and condition offered by the bank.

Charge Documents:

After the sanction advice, Bank will collect necessary charge documents. Charge documents vary on the basis of types of facility, types of collateral. But normally the following documents are required:

a) Demand Promissory Note.

b) Letter of arrangement.

a) Letter of Authority.

b) Letter of Continuation.

c) Letter of Disbursement.

d) Letter of Setoff.

e) Letter of Revival.

f) Letter of Hypothecation.

g) Standing order.

h) Letter of Guarantee.

i) Letter of Indemnity.

j) Trust Receipt.

k) Letter of Lien.

l) Memorandum of Deposit of Cheques.

Loan Disbursement:

Finally loan is disbursed and monitoring of the disbursed loan starts as well.

4.12. Requirements for loan Documentation:

The minimum requirements for loan or other facility documentation of a Bank are:

a) Copies of the relative sanction letter indicating that the transaction has been approved by properly authorized officers of the Bank.

b) A copy of the letter of sanction addressed to the customer and his acceptance thereof.

c) All necessary documentation required to meet the terms and conditions of the facility in the manner in which it was approved.

d) Before disbursement, it should be satisfied that all legal formalities have been completed.

e) Disbursement of all facilities shall be made on an Offering Sheet basis to ensure that all additional requests are duly approved by two authorized Officers one of which must be the Manager or Sub-Manager.

f) Securities offered should also be thoroughly verified / inspected once in a month and stock report prepared.

g) Where the loan agreement calls for restrictive covenants and ongoing conditions, the Manager must not only satisfy himself that these are adhered to at the outset of the transaction (i.e. date of initial takedown) but assure himself, at regular intervals, that these are not being violated.

h) Since the Manager together with the Credit Officer is fully responsible for documentation, they will formally sign a check list. Under no circumstances may anyone permit drawings under any facilities, until they have signed off the check list.

i) The Manager/Sub-Manager should ensure that appropriate steps are being taken to keep loan documentation current for all assets of the Bank. The loan documentation check-list, should therefore, be reviewed at regular intervals.

j) Lines of credit should, as a rule, be confirmed in writing to the borrower. A Specific expiration date for the line should be included. Moreover every letter of sanction must contain the Bank's standard clauses.

k) The borrower must explicitly undertake that all information supplied by him to Bank in connection with the approved lines of credit is correct.

Any material or adverse change in business conditions will cause the amount due to Bank from the client immediately repayable. The Bank reserves the right to call back the facilities extended at any time without assigning any reason whatsoever.

Security against loans and advances:

The different types of securities that may be offered to a banker are as follows:

(a) Immovable property ( Land, Building, Machinery etc)
(b) Movable property ( Products, Inventories, Gold etc)

4.12. Characteristics of good collateral

The following five items determine the suitability of items for use as collateral. The suitability depends on standardization, durability, identification, marketability and stability of value.

Standardization:

The standardization leaves no ambiguity between the borrower and the lender as to the nature of the asset that I being used as collateral.

Durability:

Durability refers to the ability of the assets to withstand wear. Or it can refer to its useful life. Durable goods make better collateral than non durable. Stated otherwise crushed rocks make better collateral than fresh flowers.

Identification:

Certain types of assets are readily identified because they have definite characteristics or serial numbers that can not be removed. Two examples are a large office building and an automobile that can be identified to make model and serial number.

Marketability:

In order for collateral to be of value to the bank, the collateral must be marketable. That is the borrower must be able to sell it. Specialized equipment is not as good as collateral as are dump trucks, which has multiple use.

Stability of value:

Banks prefer collateral whose market values are not likely to decline dramatically during the period of the loan such as common stock.

4.13. Different kinds of Collateral

Secured loans have pledge of some of the borrower’s property behind them as collateral

that may have to be sold if the borrowers have no other way to repay the bank. Some of the most popular collaterals are:

In credit policy and procedure framework of MTB it is the last step. Credit monitoring and review is very important, because it ensures proper utilization and repayment of bank fund. Periodic review and follow up should, ensured the following:

a) That conduct (Turnover, regularity of repayment etc) of the borrowing accounts during the period under review has been satisfactory or as expected

b) The account is not having excess over limit.

c) The terms and condition of the sanctioned letter are strictly followed.

d) The value of the collateral security is adequate.

e) There is not any unfavorable situation in market, economy and political conditions, which may endanger the reliability of the borrower account.

4.15. Criteria for loan classification and Provision Maintenance by MTB:

Loan classification

Number	Classification	Criteria
1.	Unclassified	Repayment is regular.
2.	Substandard	Repayment is irregular but has reasonable prospect of improvement.
3.	Doubtful debt	Unlikely to be repaid but special collection efforts may result in partial recovery.
4.	Bad/Loss	No or very little chance of recovery.

Maintenance of Provision:

Classification Criteria	Rate of Provision
General provision on unclassified Loans and advance	01%
Small enterprise financing for good loan	02%
Special Mention Account	05%
Provision for substandard loans and Advances	20%
Provision for doubtful loans and Advances	50%
Provision on Bad/loss loans and advances	100%

4.16.The scenario of Provision for loans and advances of MTB:

Year	2006	2007	2008	2009	2010
Amount	145000000	239982078	548429923	1127940772	1051687893

Provision for term loan in 2009 and 2010:

Year	2009	2010
Total Credit	28529345619	33883923705
Provision for loans and advances	1127940772	1051687893

Provision for loans and advances in 2009: